UBS Fin. Servs., Inc. v. Padussis

• Court: U.S. District Court — District of Maryland
• Writing for the Court: WILLIAM D. QUARLES, JR., District Judge.
• Citation: UBS Fin. Servs., Inc. v. Padussis, 127 F.Supp.3d 483 (D. Md. 2015)
• Decision Date: 26 August 2015
• Docket Number: Civil No. WDQ–14–3721.
• Parties: UBS FINANCIAL SERVICES, INC., Plaintiff, v. Gary T. PADUSSIS, Defendant.

127 F.Supp.3d 483

UBS FINANCIAL SERVICES, INC., Plaintiff,

v.Gary T. PADUSSIS, Defendant.

Civil No. WDQ–14–3721.

United States District Court, D. Maryland, Northern Division.

Signed Aug. 26, 2015.

Francis X. Dee, McElroy, Deutsch, Mulvaney, and Carpenter, LLP, Newark, NJ, John Stephen Linehan, Epstein Becker & Green, P.C., Baltimore, MD, Margaret Larkin Watson, McElroy, Deutsch, Mulvaney, and Carpenter, LLP, New York, NY, for Plaintiff.

Edward Patrick McDermott, Law Office of E. Patrick McDermott LLC, Annapolis, MD, for Defendant.

MEMORANDUM OPINION

WILLIAM D. QUARLES, JR., District Judge.

UBS Financial Services, Inc. ("UBSFS") petitioned the Court to vacate an arbitration award issued in connection with an arbitration brought pursuant to the Financial Industry Regulatory Authority, Inc. ("FINRA") Dispute Resolution Program. ECF Nos. 1, 12. Treating UBSFS's petition as a motion to vacate the arbitration award,¹ Padussis cross-moved to confirm the award. ECF No. 22.² Also pending is UBSFS's motion to seal. ECF No. 3. No hearing is necessary. Local Rule 105.6 (D.Md.2014). For the following reasons, UBSFS's motion to vacate will be denied, Padussis's motion to confirm will be granted, and UBSFS's motion to seal will be granted.

I. Background

A. Facts³

1. The Parties and the Dispute

UBSFS is a financial services firm and member of the Financial Industry Regulatory Authority ("FINRA"). ECF No. 12 ¶ 6. Padussis is a financial advisor licensed in several jurisdictions to buy and sell securities, and is a registered FINRA representative. Id. ¶ 7. Certain disputes between Padussis and FINRA members are resolved pursuant to arbitration under FINRA's Code of Arbitration Procedures for Industry Disputes (the "Code" or the "FINRA Code"). Id.⁴ From January 7, 2009 to April 12, 2013, Padussis worked for UBSFS as Senior Vice President for Investments.Id. ¶ 8; Pl. Ex. B, # 1 ¶ 1. At the start of his employment, UBSFS lent Padussis $2,726,602.24. ECF No. 12 ¶ 9.⁵ Padussis gave UBSFS a promissory note (the "Note") for the loan amount, which provided that any outstanding amount would immediately become due and payable upon the end of Padussis's employment with UBSFS. Pl. Ex. A, # A at 2. The Note further provided for UBSFS's recovery of attorneys' fees "[i]n the event that any arbitration ... is brought against [Padussis] to collect" on the Note. Pl. Ex. A, # A at 2.⁶ Padussis also executed a Letter of Understanding governing his compensation and related matters and a Financial Advisor Team Agreement ("Team Agreement") governing "the rights and obligations" of Team Members with whom Padussis worked. Pl. Ex. B, # 1–2; Def. Ex's 6–7.⁷

At some time,⁸ Padussis resigned from UBSFS; at that time, he owed $1,575,048.22 in principal, interest, attorneys' fees, and costs under the Note. ECF No. 12 ¶ 10; Pl. Ex. A ¶ 1. On June 3, 2013, after Padussis did not pay the Note balance, UBSFS commenced arbitration against Padussis with FINRA Dispute Resolution, Inc. See Pl. Ex. A. On July 31, 2013, Padussis counterclaimed for breach of contract and other common law claims. Pl. Ex. B. In connection with the arbitration, the parties executed a Uniform Submission Agreement ("USA"). ECF No. 12 ¶ 14; Pl. Ex. E. Under the USA, the parties agreed to arbitrate all matters—including those in the claim, answers, and counterclaims—"in accordance with FINRA By–Laws, Rules, and Code of Arbitration Procedure." Pl. Ex. E at 1.⁹

2. Applicable FINRA Rules

For disputes involving more than $100,000, the arbitration panel will consist of three arbitrators; one non-public arbitrator and two public arbitrators. FINRA Rules 13401(c), 13402(d) (hereinafter "Rule(s)"). In 2013, FINRA defined a "non-public arbitrator" as "a person who is otherwise qualified to serve as an arbitrator" and "is or, within the past five years, was ... associated with, including registered through, a broker or a dealer (including a government securities broker or dealer or a municipal securities dealer)." Rule 13100(p)(1)(A).¹⁰

For the selection of a panel of three arbitrators, FINRA will send lists of potential arbitrators to the parties "within approximately 30 days after the last answer is due." Rule 13403(c)(1). The parties may strike up to four arbitrators and rank the remaining six arbitrators. Rule 13404(a), (c). "The ranked lists must be returned to [FINRA] no more than 20 days after the date upon which [FINRA] sent the lists to the parties." Rule 13404(d).¹¹ "If [FINRA] does not receive a party's ranked lists within that time, [it] will proceed as though the party did not want to strike any arbitrator or have any preferences among the listed arbitrators." Id. "For each arbitrator classification (public, non-public, and chairperson), [FINRA] will prepare combined ranked lists of arbitrators based on the parties' numerical rankings." Rule 13405.

The "[a]ppointment of arbitrators occurs when [FINRA] sends notice to the parties of the names of the arbitrators on the panel." Rule 13406(d). If an arbitrator is unable to serve, FINRA "will appoint as a replacement arbitrator the arbitrator who is the most highly ranked available arbitrator of the required classification remaining on the [parties'] combined list." Rule 13411(a)-(b). If there are no available arbitrators on the combined list, FINRA "will appoint an arbitrator of the required classification to complete the panel." Rule 13411(c). However, FINRA may not appoint a non-public arbitrator under subsection (c) "unless the parties agree otherwise." Rule 13411(d).

FINRA—through its Director—"may exercise discretionary authority and make any decision that is consistent with the purposes of the Code to facilitate the appointment of arbitrators and the resolution of arbitrations." Rule 13412. Additionally, "[t]he panel has the authority to interpret and determine the applicability of all provisions under the Code. Such interpretations are final and binding upon the parties." Rule 13413. After the first hearing begins, arbitrators may be removed by FINRA's Director or President "based only on information required to be disclosed under Rule 13408 that was not previously known by the parties." Rule 13410 (emphasis added).¹²

3. Arbitration Proceedings and Award

On September 11, 2013, UBSFS received by regular mail a September 3, 2013 letter from FINRA referring to a September 10, 2013 deadline for submitting its ranked list of arbitrators. ECF No. 12 ¶ 24; Pl. Ex. G at 3. At the time, "UBSFS had not received any proposed list of arbitrators from FINRA ... or other notice that the arbitrator selection process had begun." ECF No. 12 ¶ 24. On September 12, 2013, UBSFS contacted FINRA and learned that the September 10, 2013 deadline had been stated in an August 21, 2013 letter to the parties. Pl. Ex. G at 3; see also Def. Ex. 22 (August 21, 2013 letter received by Padussis's counsel).

On September 18, 2013, UBSFS filed an emergency motion for an extension of time to file arbitrator rankings. Pl. Ex. G at 1.¹³ On October 7, 2013, FINRA summarily denied the motion. Pl. Ex. G, # B (Email from Allison Phillips, FINRA processing and logistical manager). UBSFS appealed the denial. Pl. Ex. G, # B (October 9, 2013 letter of appeal). On October 15, 2013, FINRA denied UBSFS's appeal. Pl. Ex. G, # B (October 15, 2013 letter decision from FINRA to the parties). FINRA reasoned that UBSFS had not shown good cause to merit the extension of time to file its arbitrator rankings; FINRA had mailed the list on August 21, 2013, and the reminder on or about September 3, 2013, and had not received any returned mail. Id. at 4.

On October 21, 2013, FINRA informed the parties about its selection of the following arbitrators: Maurice Dunie as public Chair; J. Snowden Stanley as public arbitrator; and Timothy J. Moore as non-public arbitrator. Def. Ex. 21. On July 16, 2014, shortly before arbitration hearings began, FINRA replaced Moore with Ezio Borchini. ECF No. 12 ¶ 29.¹⁴

On July 21, 2014, during the first day of hearings, UBSFS objected to the panel composition on the basis that FINRA had appointed arbitrators without UBSFS's input. Pl. Ex. J at 16–17. The panel treated UBSFS's challenge as a motion; after an executive session, the panel denied the motion. Id. at 21–23. That day, UBSFS also inquired whether Borchini was qualified as a non-public arbitrator because it was unclear whether he had worked in the industry within the past five years, as required by Rule 13100(p)(1)(A). Id. at 8–11. Chairman Dunie called a FINRA representative, who informed him that Borchini qualified as a non-public arbitrator "at least for the next three weeks." Id. at 12–13. The FINRA representative also informed Chairman Dunie that an arbitrator's qualifications for a particular classification were determined at the commencement of the hearings. ECF No. 12 ¶ 33.

On August 10, 2014, Padussis asked FINRA whether Borchini remained qualified to serve as non-public arbitrator. Pl. Ex. H. On September 11, 2014, FINRA issued a letter opinion clarifying that the relevant date for determining an arbitrator's qualifications is the date on which the list of potential arbitrators is generated—in this case, August 21, 2013—and not the date on which hearings began. Pl. Ex. I at 1. According to FINRA, on August 21, 2013, "Borchini[ ] was properly classified as a non-public arbitrator." Id. FINRA further stated that because Borchini had been "ranked by both parties in this matter," FINRA appointed him as Moore's replacement. Id. at 2.

On October 14, 2014, UBSFS submitted for the panel's consideration its certification of attorneys' fees and expenses. Def. Ex. 26. UBSFS's counsel explained that because Padussis had raised several counterclaims, "all claims in this case [including UBSFS's breach of promissory note claim] are intertwined." Id. at 3. Therefore, UBSFS's counsel had been unable to separate the time and expenses incurred in connection with its efforts to enforce the Note from its efforts to defend against the...